30 October 2015

Chairperson: Mr N Gcwabaza (ANC)

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Meeting Summary

The Human Sciences Research Council (HSRC) presented a briefing and analysis of the 2015 Medium Term Budget Policy Statement (MTBPS).The briefing covered the implications and needs of the education and health sectors, the need to have a skilled and capable state, to ensure accelerated economic growth, infrastructure investment, job creation, and social cohesion. Comments were also made about the levels of violence in society and perceptions on trust/corruption.

The HSRC said positive trends were starting to appear in higher education, with increased numbers completing secondary and tertiary education. The National Development Plan (NDP) target was to produce on average of 500 000 university graduates every year for the next 15 years, and universities received more funding than the skills sector. However, the National Student Financial Aid Scheme had insufficient funding to meet demand, payments were often delayed and there was 90% default on loan repayments. The NSFAS disbursement mechanism needed to be improved and a R10 billion injection was needed. HSRC said that higher education should ideally be funded by payments according to ability, coupled with an expectation that everyone had to repay something.

The HSRC described the additional funding granted to the Department of Health and the main recipients of these funds. Nutrition was a major concern, as was the increase of lifestyle disease. Priorities were primary health care, the National Health Insurance (NHI), R30 billion in health care facilities and equipment, financial support for the management of medicine stocks and additional funds for science and innovation.

The MTPBS had suggested interventions to develop a skilled and capable state, improving the effectiveness of the public sector, public-private partnerships and governance of Stated Owned Enterprises (SOEs), which remained a challenge. In relation to economic growth, there were challenges and opportunities for infrastructure investment, job creation and acceleration of growth. Important new focal areas included reviving investment in cities, rationalising Municipal Infrastructure Grants, transforming urban spaces and the 27 priority rural districts. Finally, HSRC emphasised the point that violence, social cohesion and levels of trust in government were under researched, underfunded and underspent, and yet were critical considerations. Perceptions on corruption and violence were outlined. Social cohesion was left to the Department of Arts and Culture as a responsibility, and its R50 million budget was put to flags and libraries.

Members questioned the rationale for aiming for 500 000 university graduates per year if they could not get employment because their skills were not what the country needed, and said funding should be more carefully aligned with the result required. They did not believe the country could afford free education, but also did not believe that imposing a wealth tax to fund extra university funds was viable, as there were opportunities to gain more funding in other ways, not least decreasing the amount of fraud and corruption. NSFAS was good in principle, but was inefficient and hampered by corruption so it was suggested that perhaps the officials needed to be replaced, and closer attention paid to how much of the money was actually getting to the students. They asked how expensive education was in South Africa compared to other countries. They commented that SADC regional developments existed but agreements were not being implemented. They suggested that all contracts should be scrutinised and evaluated to ensure that value for money was being received and suggested that government was not showing sufficient will to take strong action in respect of non-performance. They said that the MTBPS was very vague on how the Private Public Partnerships were going to work. Operational efficiencies and the effectiveness of the public sector had to be put under the spotlight. Members thought that the fact that no operational audits on SOEs were done to determine their effectiveness was problematic, and cited examples of inefficiencies, particularly the SA Post Office and SAA Board, who were being unjustifiably high salaries. Members asked for further clarity on the comments on nutrition, describing this as “a ticking time bomb”, and the figures on corruption. They commented that the insight into cohesiveness was very useful, agreed that this could not be a task assigned to one department and that it was necessary to look again at why service providers had not been appointed, and even if they were necessary. One Member urged the Committee to sharpen its oversight on government. Members also asked how effective the PALAMA Academy had been in producing effective public servants, particularly given the capacity constraints that still existed, and commented that the public service compensation figures were not in line with the services achieved. Members asked if it had been a wise decision to sell Vodacom shares.

Meeting report

2015 Medium Term Budget Policy Statement: Human Sciences Research Council briefing
Prof Crain Soudien, Chief Executive Officer, Human Sciences Research Council, said that the Human Sciences Research Council (HSRC) would address the Medium Term Budget Policy Statement (MTBPS) and its impact. (Details and figures for all sections can be found in the attached document).

Prof Soudien firstly spoke to funding for higher education, and said positive trends were starting to appear in higher education. The number of those who completed secondary and tertiary education was increasing. The National Development Plan (NDP) target was to produce, on average, 500 000 university graduates every year for the next 15 years. The funding for the university sector was higher than for the skills sector. The National Student Financial Aid Scheme (NSFAS), however, had insufficient funds to meet the number of students applying. Payments to students were late and only 10% of students repaid their loans. The NSFAS disbursement mechanism needed to be improved and R10 billion needed to be injected into NSFAS for struggling students. Funding for higher education should include the principle that people should be asked to pay according to their ability to do so, and to insist that everyone had to pay back something to recover the cost of the investment.

Prof Leickness Simbayi, Executive Director: HIV/AIDS Sexually Transmitted infections and TB programme, HSRC, spoke to the additional funds granted the Department of Health and the main recipients of these funds.

Prof Demetre Labadarios, Executive Director: Population Health, Health Systems and Innovation, HSRC, said the country continued to experience under and over nutrition. The annual budget on health grew 8.3% which reflected a real increase. The priority areas for budget allocations were investments in primary health care, the roll out of the National Health Insurance (NHI), R30 billion in health care facilities and equipment, financial support for the management of medicine stocks and additional funds for science and innovation.

Dr Greg Houston, Chief Research Specialist: Democracy, Governance and Service Delivery, HSRC, spoke to the interventions suggested in the MTBPS for a skilled and capable state, on improving the effectiveness of the public sector, on partnerships with the private sector, the governance of State Owned Enterprises (SOEs) and other challenges.

Dr Peter Jacobs, Chief Research Specialist: Economic Performance and Development, HSRC, outlined the economic context and gave an overall assessment before speaking to the challenges and opportunities for accelerating economic growth, for infrastructure investment and job creation. He said important new focal areas included reviving investment in cities, rationalising Municipal Infrastructure Grants (MIG) and transforming urban spaces and he spoke to the 27 priority rural districts.

Dr Sharlene Swartz, Research Director: Human and Social Development Research Programme, HSRC, said violence, social cohesion and levels of trust in government were under researched, underfunded and underspent. She spoke to why these areas were critical considerations when making budget allocations. She further gave details on corruption in government and violence in society. She said social cohesion and nation building only received an allocation of R50 million in the Department of Arts and Culture (for flags, flag poles and libraries). This was insufficient.

Discussion
Mr A Shaik Emam (NFP) asked what was the point of having 500 000 university graduates per year if they were unemployed after they graduated, and if the skills they had were not in line with what the country needed. He said the country’s educational funding should be aligned with the skills needs of the country.

He also said there was a need to understand what free education meant. He did not believe the country could afford free education; it should be based on the need and commitment of the student. The fact that the graduates could not get employment, and therefore could not repay the NSFAS loan was a serious challenge. He added that if there were suggestions around cutting costs of universities then this would begin to speak to the quality of education offered. He said putting a wealth tax in place to fund the extra university funds required was putting an extra burden. He felt that funding should be found from elsewhere – such as decreasing corruption and fraud. He believed that government did not have the will to take action for non performance.

He said the SADC regional development had been agreed upon and the opportunity was there, but it was not being implemented. He said labour costs were a challenge to industry but South Africa did have the ability to manufacture.

He commented that there was an reported estimate of R35 billion being lost to corruption but he believed it to be in the region of R200 billion, mainly through contracts that provided little value for money. The contracts should be scrutinised and compared to ensure that value for money was being received.

He also commented that the MTBPS was very vague on how the Private Public Partnerships (PPP) were going to work.

Mr M Figg (DA) also commented on the target to produce 500 000 university graduates through the system He said that the NDP document was good but South Africa was not going to meet those targets, so it must readjust them, rather than being unrealistic. He said that NSFAS was a good tool but it was inefficient and there was corruption, so maybe the staff of the NSFAS needed to be replaced. The funding of NSFAS, and how much of the money was getting to the students, also needed to be looked at. He said the country could not look at an increase in taxes. This could not be a good suggestion, because it would cause more damage to the economy. There was enough money in the economy to fund what was needed.

In regard to skills in state systems and the public sector, he said that it was necessary to look at operational efficiencies and the effectiveness of the public sector. In relation to audits, he said there were no operational audits on SOEs so it was not possible to determine whether operations were effective and efficient. He said he had heard that SOEs would ask for another R23 billion. The SA Post Office had not been paying its staff regularly, while members of the SAA Board were being paid R4 to R5 million and these amounts could not be justified.

Ms M Manana (ANC) wanted further clarification on under and over nutrition, and on corruption.

Ms P Nyalungu (ANC) said investment in infrastructure was slow to grow, and asked what the root cause of this was. She acknowledged the importance of social cohesion and nation building. She asked, in relation to the Dialogue and Collaboration appointment of a service provider, whether there was any need for a service provider to be appointed.

Ms S Shope-Sithole (ANC) said that all the programmes that had been raised in the presentation had assisted the Committee in its function of oversight and lawmaking, and she agreed that the Committee should follow upon on the performance of government. She asked that the HSRC presenters should leave their business cards so that the Committee could follow up on the presenters' advice. She said the point made on social cohesion was very good as it had not been picked up before. In relation to the comments that government was not implementing, she agreed that the Committee had to follow up if departments did not do what it was asked to do. The Committee needed to sharpen its oversight on government.

Mr N Gcwabaza (ANC) said the example had been cited that India spent more than South Africa on higher education. However, he pointed out that the size of the Indian population was bigger than South Africa’s, and it would be better to compare South Africa with a country that a had similar population numbers. He wondered how expensive, compared to other countries, was education in South Africa. If government was not giving sufficient funding to education, then it was necessary to ask if this was because education was too expensive or because there were not enough resources. There was a need to find out ,from universities, what each university was funding in terms of the needs of the economy, because skilled people needed to be produced to meet the needs of the country. He agreed that the country’s post-matric education was not providing the skills that were needed by the country. What then was higher education funding, because there were jobs in the economy but the education was not producing the skills required? If this question was not answered, the country would continue to pour money into education yet not produce what the country wanted. The commitment of students also needed to be looked into. With regard to NSFAS, he asked if the government had a list to determine who really were the needy students. He said the concept of free education needed to be looked at again, in more detail, and come up with results on how much free education would cost the country.

Mr Gcwabaza took note of the comment on the public service skills, and asked how effective the Public Administration Leadership and Management Academy (PALAMA) had been in producing education in the public service, and how effective public service academies had been in general. He wondered why, so many years after PALAMA had been running, the public service sector still did not have the skills it needed?

He added that the presenters had said that government needed to “sort out the messes” that the Boards and officials of SOEs had created, on the one hand, yet also suggested on the other that more money should be put to the SOEs. He suggested that before doing so, government had to find out why they were failing, and where the financial leaks had been. He noted that many seemed to be operating as semi-private businesses.
Mr Gcwabaza said the points raised around social cohesion were unique for him, and he much appreciated the points being made. He said the level of violence was increasing and to suggest that the arts and culture sector alone could deal with building social cohesion and eliminating violence would be asking too much from the Department of Arts and Culture. The South African Police Service (SAPS) had made the point that many people held the perception that the police were violent. SAPS also said that the service needed more funding to purchase equipment that would reduce any violent approach. It was not correct to attack the SAPS, and very little had been said about this kind of funding.

Mr Shaik Emam said South Africa's health situation was “a ticking time bomb”. He said that the issues of diabetes and obesity were already so serious that they were leading to a situation where the entire budget of the country would not be enough to solve the problem. He asked what the HSRC had to offer by way of advice on this point.

Prof Soudien summarised that the questions were, broadly speaking, grouped around the target number of student graduates, the tax regime, the skill sets environment, corruption, the public service and PALAMA, social cohesion, the question of nutrition, the funding of SOEs and the health “time bomb”.

He thanked Ms Shope-Sithole for asking what could be done by the Committee, because every year the HSRC asked what was being done with the input that it had given. He said the HSRC wanted to provide the best possible information to the Committee to help it resolve issues. He would be pleased to leave contact details with the Committee.

Prof Soudien said, in relation to the number of graduates, that it was correct that there was a misalignment regarding the skills required in the country and the output of the universities. The majority of graduates were registering in the Social Sciences and universities were not attracting enough students into Maths and Science. It was a structural reality which had been in existence for decades. There was a need to build up the technological capacity of the country. However, the figures for graduate unemployment were way lower than the figures for matriculants unemployment, so he did not think it was useful to take money away from universities.

He asserted that the tax regime issue was a little complicated. Wealthy people had done better than poor people in the last 15 years and the country needed to manage the reality that some have become more comfortable and others not. This was a moral issue which the tax regime had to come to terms with.

Dr Jacobs added that South Africa had indirect or regressive taxes, like the VAT system, which the Minister of Finance himself indicated was likely to be revisited. In South Africa the regressive taxes weighed heavily on people with lower incomes and it was comparable to Brazil and other BRICS countries in this regard. On the other side of an unequal society were the corporates and very wealthy people. He noted that South Africa was one of the most unequal countries, so that immense poverty was also balanced with pockets of high wealth rankings by comparison with other countries. He noted too that the government had to find sources of revenue, such as, for example, the top income bracket of people, to provide services. There had been a decline in the top marginal income tax rate, which had become a concern and was reflected in increasing levels of household debt. Other options were taxes on houses, shareholding and land. He did not think the Minister had a lot of options as far as taxes were concerned.

Dr Jacobs said that South Africa exports were dominated by minerals and that South Africa had been slow to diversify away from minerals. There was a need to find appropriate markets and an increasing interest in Africa as an export destination for certain products. South Africa was not producing the necessary manufacturing equipment, resulting in imports affecting South Africa’s balance of payments. Imports of expensive consumables was another issue of concern.

Dr Houston said the main challenges facing SOEs were issues of accountability and corruption. In regard to the salaries of Board members or Directors, he said it was necessary to look at the research documents that accompanied the report on SOEs. There were small entities that were paying the highest salaries. The research committee had attempted to resolve these issues of governance and performance management and remuneration. The strongest recommendation that came out of the report was to have SOE legislation that could act as guidelines that might lead to more efficient SOEs.

Prof Labadarios commented on what had been described as “the nutrition time bomb”. Children had a growth curve from the time they were conceived. Those children who were originally stunted in growth stood a three times higher chance of becoming obese. Children with stunted growth was in fact a worse issue than overweight children, because stunted children reflected a chronic condition. The overweight issue was not just found amongst the wealthy but also amongst the poor who did not eat nutrient-rich foods. Overweight people were susceptible to medical conditions which cost the state money.

In South Africa, HIV- Aids treatment cost a lot of money, but the country was not dealing only with HIV. It was now dealing with diabetes, cancer and hypertension. The description of the state of health of the population as “a time bomb” was correct. HSRC had research paper on the cost of diabetes which could be sent to the Committee.

Dr Swartz said NSFAS should be run like SASSA was run because SASSA had shown improvement with countering corruption.

She said one should not conflate free and open education. In Germany education was free but it was difficult to get into university. There was also a need to guard against only focussing on having technical education for skills, because the humanities helped form the society in which people lived.

She said corruption was a political piñata, where everybody blamed everyone else. The BRICS countries all showed an element of corruption, yet they still showed growth in their economies. Corruption alone did not stop the economy from growing.

She spoke to the issues of the national dialogue. There was an assertion that the money that was supposed to be used for dialogue and collaboration had not been spent because no service provider could be found. Her own experience was that any attempts to find service providers usually ended up with long conferences and this was not needed. Instead, she suggested that a curriculum for this could be drawn up in all departments and in civil society. In Nigeria, all graduates worked in area unlike their own area - for example a Muslim would work in a Christian area, because there were issues between Muslim and Christians and between ethnic groups that could only be recognised by being intimately involved in them.

Mr Shaik Emam responded on the issue of assistance to SOEs, and said his concern was the sale of assets like the Vodacom shares, rather than the SOEs disposing of assets that were not functioning or performing to expectation. He said the compensation of employees was increasing every year, yet the output was not in line with the money spent.

Dr Jacobs said that there was very little that could be done. In that context, it was necessary to figure out at which end of the scale the public sector wage was growing. He believed it was growing at the level of the bureaucracy, rather than technical personnel who could deliver the services that the country wanted to deliver. This challenge had to be confronted, coupled with a shift in focus from top end people to people who could do the work on the ground.

Dr Houston said the issue of the sale of non performing SOEs was an issue raised in the SOE report. SOEs had the capacity to solve issues but also had the capacity to drain state resources. SOEs had grown in number, from 300 to 700. There were subsidiaries that did not even know that they were SOEs.

Mr Figg felt the problem was not the SOEs per se, but the problem lay in making appointments of people to the Boards who were not competent. SOEs were a worry to the community and the state. He too questioned whether it was a wise decision to sell the R25.4 billion of Vodacom shares?

Mr Gcwabaza said that that was an issue that could be teased out further.